November 04, 2011

The right's smoke and mirrors scam about Social Security--it ain't broke (unless China is too)

We've noted in these postings the growing inequality between rich and the rest of us in America, and that is the appropriate backdrop against which to investigate further the right's smoke-and-mirrors scams about tax policy and earned benefits. Let me remind you with Kevin Drum's Mother Jones article on The Price of Plutocracy: "For all practical purposes, every year about $700 billion in income is being sucked directly out of the hands of the poor and the middle class and shoveled into the hands of the rich." (That sentence is illustrated with a great chart, with data drawn from Joseph Hacker of Yale and Paul Pierson of Berkeley, the authors of Winner-Take-All Politics, a book I highly recommend.)

The national debate about deficits has been part of a relentless push by the right to reduce as much as possible the New Deal earned benefit programs of Social Security and Medicare. The right twists the facts to suit the arguments it wants to make. Krugman hones in on this issue, noting Dean Baker's similar anger at the Washington Post's inconsistency in considering Social Security in a recent article by Post writer Lori Montgomery, who seems to be miming for the hard right, anti-New Deal crowd in Washington . See Krugman, Social Security, Bait and Switch, a Continuing Series, New York Times (Oct. 30, 2011).

Social Security is a program that is part of the federal budget, but is by law supported by a dedicated source of revenue. This means that there are two ways to look at the program’s finances: in legal terms, or as part of the broader budget picture.

In legal terms, the program is funded not just by today’s payroll taxes, but by accumulated past surpluses — the trust fund. If there’s a year when payroll receipts fall short of benefits, but there are still trillions of dollars in the trust fund, what happens is, precisely, nothing — the program has the funds it needs to operate, without need for any Congressional action.

Alternatively, you can think about Social Security as just part of the federal budget. But in that case, it’s just part of the federal budget; it doesn’t have either surpluses or deficits, no more than the defense budget.

Both views are valid, depending on what questions you’re trying to answer.

What you can’t do is insist that the trust fund is meaningless, because SS is just part of the budget, then claim that some crisis arises when receipts fall short of payments, because SS is a standalone program. Id. (emphasis added).

Further, the right refers to these programs as "entitlements", a term that is meant to dredge up resentments against those who have some rights to benefits from these programs. The right uses "personal responsibility" and "entitlements" as though they refer to two non-intersecting worlds, whereas in fact the opposite is true.

Workers pay into Social Security to support current workers who paid into it in the past. The trust fund was established, and amended with a good deal of actuarial research under Reagan in 1983, with the knowledge that the baby boom generation would be passing through and create a bulge of benefit needs and that US birth rates tended to be smaller now than they were a century ago. In other words. what is happening now in terms of the baby boomer population reaching retirement age and the decline in US birthrates was exactly the information on which the Social Security changes made in the 1980s were predicated. Either we believe that these kinds of predictions are reasonable (in which case it is utterly silly to raise nightmare scenarioes about bankruptcy, because there is nothing of the sort) or we believe that it is impossible to predict for sure what will happen (in which case it is utterly silly to raise nightmare scenarios about Social Security bankruptcy, because GDP could grow just a little faster than predicted, easing all future problems, or boomer needs could grow just a little less than predicted, easing all future problems). Either way, the crisis-bell ringing being done by the right as a way to attribute deficits to Social Security is a smoke and mirrors scam.

It is even more so since the Social Security trust fund is invested in US Treasuries and those Treasuries plus new tax funds coming in pay all the benefit costs. Is the US going to default on Treasuries. Well, if so, we have a bigger problem with Japan and China not liking that--not just the Social Security trust fund. The hard right seems to think it is okay to play political games with US debt, but American citizens should be aware that this is what they are doing.

For a good overall exposition of these issues, see the article in Salon by Gene Lyons, How the Rich Created the Social Security 'Crisis' (Nov. 3, 2011) (noting the "decades-long propaganda war against America’s most efficient, successful and popular social insurance program").

[T]his is the beneficiaries’ money, invested by the Social Security trustees in U.S. Treasury bonds drawn upon “the full faith and credit of the United States.” Far from being “meaningless IOUs” as right-wing cant has it, they represent the same legally binding promise between the U.S. government and its people that it makes with Wall Street banks and the Chinese government, which also hold Treasury Bonds.

A promise not very different, the Daily Howler’s Bob Somerby points out, from the one implicit in your bank statement or 401K (if you’re lucky enough to have one). Did you think the money was buried in earthen jars filled with gold bullion and precious stones? Id. (emphasis added).

One might add that many of our multinational corporations that are currently lobbying heavily for yet another tax break in the form of a "repatriation holiday" for their offshored, untaxed profits actually have the substantial portion of those profits invested in those same U.S. Treasury notes. So, as ataxingmatter has noted before, much of that money is already in the US and repatriation will generally not be of much benefit merely from bringing cash back to go through the US economy. As the article notes, allowing repatriation would lead to corporations dumping about a trillion of US Treasuries on the market, and likely cause a rise in the interest rate the US government must pay to borrow. Not a win-win situation. IN fact, clearly a loss for the US government and the majority of US taxpayers, both in Treasury interest rates and in lost corporate tax revenues.

Comments

The right's smoke and mirrors scam about Social Security--it ain't broke (unless China is too)

We've noted in these postings the growing inequality between rich and the rest of us in America, and that is the appropriate backdrop against which to investigate further the right's smoke-and-mirrors scams about tax policy and earned benefits. Let me remind you with Kevin Drum's Mother Jones article on The Price of Plutocracy: "For all practical purposes, every year about $700 billion in income is being sucked directly out of the hands of the poor and the middle class and shoveled into the hands of the rich." (That sentence is illustrated with a great chart, with data drawn from Joseph Hacker of Yale and Paul Pierson of Berkeley, the authors of Winner-Take-All Politics, a book I highly recommend.)

The national debate about deficits has been part of a relentless push by the right to reduce as much as possible the New Deal earned benefit programs of Social Security and Medicare. The right twists the facts to suit the arguments it wants to make. Krugman hones in on this issue, noting Dean Baker's similar anger at the Washington Post's inconsistency in considering Social Security in a recent article by Post writer Lori Montgomery, who seems to be miming for the hard right, anti-New Deal crowd in Washington . See Krugman, Social Security, Bait and Switch, a Continuing Series, New York Times (Oct. 30, 2011).

Social Security is a program that is part of the federal budget, but is by law supported by a dedicated source of revenue. This means that there are two ways to look at the program’s finances: in legal terms, or as part of the broader budget picture.

In legal terms, the program is funded not just by today’s payroll taxes, but by accumulated past surpluses — the trust fund. If there’s a year when payroll receipts fall short of benefits, but there are still trillions of dollars in the trust fund, what happens is, precisely, nothing — the program has the funds it needs to operate, without need for any Congressional action.

Alternatively, you can think about Social Security as just part of the federal budget. But in that case, it’s just part of the federal budget; it doesn’t have either surpluses or deficits, no more than the defense budget.

Both views are valid, depending on what questions you’re trying to answer.

What you can’t do is insist that the trust fund is meaningless, because SS is just part of the budget, then claim that some crisis arises when receipts fall short of payments, because SS is a standalone program. Id. (emphasis added).

Further, the right refers to these programs as "entitlements", a term that is meant to dredge up resentments against those who have some rights to benefits from these programs. The right uses "personal responsibility" and "entitlements" as though they refer to two non-intersecting worlds, whereas in fact the opposite is true.

Workers pay into Social Security to support current workers who paid into it in the past. The trust fund was established, and amended with a good deal of actuarial research under Reagan in 1983, with the knowledge that the baby boom generation would be passing through and create a bulge of benefit needs and that US birth rates tended to be smaller now than they were a century ago. In other words. what is happening now in terms of the baby boomer population reaching retirement age and the decline in US birthrates was exactly the information on which the Social Security changes made in the 1980s were predicated. Either we believe that these kinds of predictions are reasonable (in which case it is utterly silly to raise nightmare scenarioes about bankruptcy, because there is nothing of the sort) or we believe that it is impossible to predict for sure what will happen (in which case it is utterly silly to raise nightmare scenarios about Social Security bankruptcy, because GDP could grow just a little faster than predicted, easing all future problems, or boomer needs could grow just a little less than predicted, easing all future problems). Either way, the crisis-bell ringing being done by the right as a way to attribute deficits to Social Security is a smoke and mirrors scam.

It is even more so since the Social Security trust fund is invested in US Treasuries and those Treasuries plus new tax funds coming in pay all the benefit costs. Is the US going to default on Treasuries. Well, if so, we have a bigger problem with Japan and China not liking that--not just the Social Security trust fund. The hard right seems to think it is okay to play political games with US debt, but American citizens should be aware that this is what they are doing.

For a good overall exposition of these issues, see the article in Salon by Gene Lyons, How the Rich Created the Social Security 'Crisis' (Nov. 3, 2011) (noting the "decades-long propaganda war against America’s most efficient, successful and popular social insurance program").

[T]his is the beneficiaries’ money, invested by the Social Security trustees in U.S. Treasury bonds drawn upon “the full faith and credit of the United States.” Far from being “meaningless IOUs” as right-wing cant has it, they represent the same legally binding promise between the U.S. government and its people that it makes with Wall Street banks and the Chinese government, which also hold Treasury Bonds.

A promise not very different, the Daily Howler’s Bob Somerby points out, from the one implicit in your bank statement or 401K (if you’re lucky enough to have one). Did you think the money was buried in earthen jars filled with gold bullion and precious stones? Id. (emphasis added).

One might add that many of our multinational corporations that are currently lobbying heavily for yet another tax break in the form of a "repatriation holiday" for their offshored, untaxed profits actually have the substantial portion of those profits invested in those same U.S. Treasury notes. So, as ataxingmatter has noted before, much of that money is already in the US and repatriation will generally not be of much benefit merely from bringing cash back to go through the US economy. As the article notes, allowing repatriation would lead to corporations dumping about a trillion of US Treasuries on the market, and likely cause a rise in the interest rate the US government must pay to borrow. Not a win-win situation. IN fact, clearly a loss for the US government and the majority of US taxpayers, both in Treasury interest rates and in lost corporate tax revenues.